POSCO

Of the various industries in the basic materials sector, integrated mining noted the highest dividend yield.

In the previous part of this series, we looked at US steel demand indicators. In this part, we’ll look at Chinese steel demand indicators.

ArcelorMittal’s (MT) subsidiary ArcelorMittal India Private Limited has made a bid to acquire troubled Indian steelmaker Essar Steel.

ArcelorMittal (MT) reported revenues of $17.7 billion in 4Q17. The company posted revenues of $17.6 billion in 3Q17 and $14.1 billion in 4Q16.

Generally, steelmaking raw materials and steel prices tend to move in tandem. Steel prices react to changes in raw material prices and vice versa.

In this series, we’ll look at the top ten companies in the global steel industry based on steel production, steel consumption, and steel imports.

In this article, we’ll look at ArcelorMittal’s 1Q17 cash flow and leverage positions. As of the end of 1Q17, ArcelorMittal had net debt of $12.1 billion.

ArcelorMittal’s 1Q17 operating income rose sharply in 1Q17 compared to 4Q16. There are several other metrics we can look at to assess a company’s financial performance.

Because China is the world’s largest steel consumer, it’s important for investors in companies such as U.S. Steel, ArcelorMittal, POSCO, and Gerdau to keep track of the Chinese steel industry.

In 2Q16, ArcelorMittal’s Mining segment generated an EBITDA of $163 million as compared to $98 million in the sequential quarter.

Global steel production has fallen on a YoY (year-over-year) basis for 17 consecutive months. In May, production fell 0.09% YoY.

China produced 70.5 million metric tons of steel products in May 2016, according to data released by China’s National Bureau of Statistics.

May is turning out to be a rough month for steel companies as concerns over the health of the world’s second-largest economy have resurfaced.

Tata Steel is exiting its UK operations after years of losses. But ArcelorMittal gets ~50% of its revenues from Europe, leveraging it to European steel.

The US has imposed preliminary duties on three key steel product categories: hot rolled coil (or HRC), cold rolled coil (or CRC), and corrosion-resistant steel products.

Integrated operations have been one of the factors driving steel companies’ recent performances. Iron ore and coal mining fall under steel companies’ upstream operations.

TRAOX aims to grow capital by investing in “stocks issued by companies that are located in, or that have economic ties to, Asia (excluding Japan).”

From a purely net asset value return standpoint, PRASX was a below-average performer for both the one-year period until February 29, 2016, and for 2015.

PRASX has existed since September 1990 and has an expense ratio of 0.94%. A minimum of $2,500 is required to invest in this fund.

China plans to curtail its excess steel capacity. However, even if China actually cuts the excess steel capacity, it could be in a very gradual way.

The Wells Fargo Asia Pacific Fund invests ~80% in Asia Pacific Basin equities, focusing on firms “with above-average sales and earnings” potential.

The Bank of Korea maintained its interest rates at record lows of 1.5% in its December meeting. The central bank felt the eased policy stance would assist economic growth momentum.

FuelCell Energy (FCEL) relies heavily on its strategic partners for its financing needs through revolving credit facilities.

FuelCell Energy (FCEL) reported total revenues of $51.5 million for fiscal 4Q15 compared to $54.4 million for fiscal 4Q14.

AK Steel uses steel scrap as a raw material. Steel scrap prices have fallen steeply, which should help lower AK Steel’s unit production costs further.

Chinalco announced aluminum cuts of 530,000 tons in October. However, it will now be cutting production by only 150,000 tons.

Chinese steel prices have continued to slide in November. Chinese steel mills lost $35 per ton on average in 3Q15.

The price-to-book value ratios of ArcelorMittal, Vale, POSCO, Ternium, and Gerdau are 0.26x, 0.49x, 0.34x, 0.70x, and 0.28x, respectively.

ArcelorMittal’s YTD price movement has been falling quarter-over-quarter in 2015. After the 3Q15 earnings report, the company fell by 0.55% to close at $5.43 per share.

China’s real estate climate index was up 0.40 basis points to 93.03 in July. Prior to this gain, the index had fallen in every month but October since February 2014.

In May, US steel imports from South Korea and Russia fell 39% and 65%, respectively, in May. Steel imports from Japan and Brazil increased 20% and 11%, respectively.

Spot steel prices have inched up a bit after hitting their low in May. If the US steel demand stays strong and imports decline further, as they did in May, spot steel prices could see further upward movement.

May construction spending data, released on June 1, came in at a SAAR of $1.04 trillion. This is the second straight month where construction spending has passed $1 trillion SAAR.

China’s real estate climate index has fallen every month but October since February 2014. The index dipped to 92.43 in May, a new multi-year low.

The construction sector accounts for more than 40% of total steel consumption in the US. In April, construction spending increased 2.2% over the previous month.

Chinese steel production declined 0.7% in April on a year-over-year (or YoY) basis.

US steel consumption grew at 11.7% last year. However, for this year, the World Steel Association expects consumption to decline 0.4% over the previous year.

The real estate climate index indicates that construction activity in China remains weak despite the government’s easing efforts.

The decline in China’s real estate climate index is an indicator that Chinese construction activity has slowed down. China’s real estate sector is a key driver of global steel demand.

In the latest reading in March, total construction spending increased 2.2% on a YoY basis. However, it declined slightly from February.

Steel scrap prices tanked by more than 25% in February. This helped mini mills. They were at a competitive disadvantage due to the decline in iron ore and coal prices.

AK Steel outlook Previously in this series, we discussed AK Steel (AKS) 1Q 2015 earnings. In this part, we’ll discuss its outlook for 2015. On April 30, AK Steel announced a price increase across all its flat rolled steel products. Before AK Steel, ArcelorMittal (MT) had also increased prices for its steel products. These price increases should […]

March housing starts declined 3.5% on a YoY basis. In February, housing starts dropped by 2.3%. The data was released on April 16. It was lower than expected.

Edwin Basson, the Director General of WSA, expects another 400 million tonnes of steel demand—led largely by India (EPI).

The construction sector accounts for more than half of China’s steel demand, as it uses steel products like rebars, decks, and joists.

India’s current account deficit rose to 4.8% of GDP in 2012–2013, largely financed through hot money flows, and exceeded the government’s target level of 2.5% to 3% of GDP.